Assessing the Risk and Return of Alternative Project Financing with Dynamic Cash Flow Modelling – a Case Study
PDAC 2023, Technical Program Presentation
March 6, 2023
Abstract: Numerous financing methods are used to finance mining project development ranging from traditional project debt to alternative financing arrangements tied to metal prices. Static cash flow models are often used to determine a project’s ability to fulfill its financing obligations by calculating internal rate of return and financing ratios. However, this modelling approach has a weakness in that investment performance and risk are not adequately assessed across a range of future possibilities.
Dynamic cash flow modelling is a framework that uses simulation, finance theory, and risk management concepts to consider a project and its financing arrangements across a range of possibilities. This presentation analyses the financing package for Sabina Gold’s Back River Gold Project to demonstrate how risk and return is distributed between equity, debt, and various types of alternative finance. It highlights how early closure is impacted by financing and the risk levels of some alternative financing arrangements. Dynamic cash flow modelling is a powerful tool for designing a financing package that shares economic potential between stakeholders while recognizing exposure to financial market risk.
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